The Income Streams of Millionaires

The Income Streams of Millionaires – and Examples

Do you know that you simply can’t be rich just by working your ass off for one job for thirty years?

@apichart_p via Twenty20

Most only have 1 or 2 income streams. Millionaires have 4 to 6; while some multimillionaires and billionaires have 6 to 8 income streams!

Earning from a job can easily become a comfort zone, the default for most people. But this path could never get you the life you dream and deserve.

You don’t build wealth overnight. A solid foundation is built, brick by brick, over years of hard work to ensure financial stability.

First off, let’s have you become familiar with the 8 income streams for millionaires:

8 Income Streams

1 – Earned Income

Earned income is income earned working from a job. You get compensated according to the time you work. This is also a form of active income. Earned income is the most common income stream and one that most people have already.

Most people rely on a job as the sole income stream for the rest of their life. They work for 30 to 50 years, retire and get a modest pension, live off that until they die.

For most Filipinos, we are most familiar with this kind of income. How many parents have pushed their kids to study hard, finish college, and be a respectable doctor, lawyer or nurse?

@christinacorso via Twenty20

While this works for most, this is middle-class mindset and this strategy is not going to make you financially rich. How about other contingencies–such as emergency sickness, an economic depression, job termination, or another pandemic crisis?

You know what the running joke is towards JOB: it’s short for Just Over Broke.

Earned income may be the most common, but it should not be solely relied on. A good strategy is to get decent savings from earned income for several years so you can invest that in building other streams of income.

2 – Profit Income

This is the second most common source of income. For most people, they often transition to earned income and use savings to jump and to be an entrepreneur.

Profit income is where you sell at a higher value an item you bought or created. You acquire products and resell them at a profit. One means of profit income is through owning a retail store or e-commerce store.

Entrepreneurship requires a different mindset: risk taking, focus and discipline.

You might need to put out a sizable investment to start a small business. You will have to put in a lot of hard work especially during the start. It gets easier when you figure out a system and a stable client base to make the business easier.

This is how Greta van Riel started her empire at only 22 years old with only 25 bucks on her bank account. Her first e-commerce company, SkinnyMe Tea, scaled to $600k/month in just 6 months. She has since launched more e-commerce businesses, and her estimated net worth now is $5 million.

To start, look at your available skill and resources. It’s better to start something you already know or with proficiency. People often start monetizing from their talent and skill: baking, jewelry making, or website development. Choose something you enjoy doing and not just for the money.

Some businesses, also started in the garage (Apple) or in someone’s bedroom (Airbnb). Or in some cases, in someone’s truck! (Nike)

It’s also good to look at the market and see where the demand is. When I was younger, I used to make a decent allowance doing other students’ school papers.

Many people often focus on the first two types of income streams. But there are 6 more lucrative income streams:

3 – Interest Income

Interest income is earned from lending money. Often, interest is associated with banks and lending institutions. But when we put money in the bank, we are essentially lending it to the institution for someone else to use. We can also lend to the government by purchasing treasury bills and bonds.

LOI – or living on interest – this is the default income stream among the extremely wealthy. For this is the reason why people say earning the first million is the hardest. When you have so much money, the money does all the work for you. (Also read – What does a billion look like?)

Interest income beats 1 and 2 income streams any time because you don’t even need to lift a finger. Interest makes great passive income. Along with compounding interest, interest is truly a great source of passive income, less risk, and least amount of effort.

4 – Dividend Income

Dividend income returns on the stocks in the stock market. This is the money you get as returns to the company shareholders. Dividend income is taxable.

It is not required for publicly listed companies to give dividends to their shareholders. They could choose to reinvest all profits back into the business. However, giving dividends sends a message about a company’s future prospects and performance. Some investors choose certain stocks over others because they are known to give dividends consistently.

Read: Mutual Funds vs. Stocks – What’s the Difference?

5 – Rental Income

Other people also choose to invest their savings to purchase property for the intention of renting it out. This can be in the form of commercial (offices, retail) or in residential (condos, houses).

Real estate is a lucrative means of income because it has a lot of possible types of generating income: rental income and capital gains (property value almost always appreciates).

The concept is simple: you buy property, you lend it out, and receive monthly rental payments. It’s a pretty consistent way of getting income.

Landlords could do long-term lease (most preferred), short-term lease, and recently, many have invested in real estate for the purpose of becoming Airbnb hosts.

Owning real estate is a popular dream for many–but it does have a lot of drawbacks. The amount of capital is huge, whereas for interest income or dividend income you can start with much, much less capital. Another is its illiquidity. Unlike previously mentioned income streams, this is much harder asset to convert in case you need to rebalance your portfolio.

6 – Capital Gains

Capital gains is when you purchase assets that increase in value. The concept is simple: let’s say you bought a house in 2008 for 200,000. You lived in the house for 10 years and decided to move overseas. You find out that the market value of your house in 2020 has tripled and is now worth 600,000. You can then sell it off at a great profit for doing nothing.

Another is the value appreciation of stocks you own. This is primarily how Warren Buffett gained his fortune, by acquiring Berkshire Hathaway and then intelligently investing on the smart market.

Image from Forbes | Dennis Van Tine/STAR MAX/IPx 2017

Be aware of capital gains tax. Tax laws vary from different countries or states, but the wealthy have figured out ways to go around these taxes as well.

7 – Residual Income

Residual income — whereby you continue to get paid for doing something long after it is done.

The most common one is writing a book. It takes months or even years to write a book. And when it’s done, it’s done! Sure, you can update your book, add on to it, edit some parts–but for the most part, it is done. You can get consistent residual income for the work already done.

Some example of royalty income is writing books, e-books, starting a website, or creating a webinar or online course. With the boom of the internet, it is now easier to create and monetize. A lot of people have now depended on YouTube as their main source of income, such as Ryan and his family from Ryan’s Toys Reviews (now renamed Ryan’s World).

This is also primarily how J.K. Rowling became a billionaire. Rowling continues to receive residual income for every copy sold, and then royalty income when Harry Potter was made into a movie (more on that on income stream no. 8)

Image from ABC. Walter McBride/WireImage via Getty Images, FILE

Residual income is great because unlike earned income, you’re no longer selling your time. You’re just putting in the hard work in creating the asset, and then putting it to work. You are selling your idea–thoughts, experiences, stories–and get a consistent income from it.

7 – Royalty Income

Royalty income is when others pay you for intellectual property: an idea, invention, product, or business model.

When you create an intellectual or creative asset–a movie, song, or book–and other people use it, you can receive royalty income. E.g. for every song used in a YouTube video or movie, you have to pay rights to it. JK Rowling receives a share on the earnings for movie tickets, ride tickets, and sales merchandise. The movie franchise alone netted her around $2.5 billion US.

The smartest thing boxing announcer Michael Buffer did was copyright his catchphrase, ‘Let’s get ready to rumble!’. It is reported that he has earned 400 million USD from it. If you have a worthy idea or invention, protect your intellectual rights by securing copyrights, trademarks, or patents.

More than a decade after Michael Jackson’s death, his estate is still earning as much as $400 a year, earning him the No. 1 spot on Forbes’ Highest-Paid Dead Celebrity list! (Black Enterprise)

It is worthy to know though, applications cost a considerable amount of money. A patent will only be worth it if it is valuable commercially.

Read also: Entrepreneurs -Patents & Funding

One example is franchising–one can sell a proven business system to others, along with experiences, resources, and brand equity. This is how Ray Kroc and Howard got super-wealthy. They provided franchisees a proven, replicable business model and license to use their brand reputed brand (McDonald’s and Starbucks, consequently)

These are the 8 income streams for millionaires. Don’t get stuck with just income stream 1 or 2, work towards getting more. Do not get pressured to acquire all 8, most millionaires and billionaires don’t! Just learn to diversify and especially focus on how you can move towards earning passive income streams. Good luck!

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